If Fuel Prices Fall Will I Still Have to Pay Fuel Surcharges on Award Tickets? And How Can I Reduce Those Now?

With airlines purchasing more fuel effecient long range planes, could you write on whether these purchases will ever lead to decreased or eliminated fuel surcharges on awards. I’m specifically wondering if BA will reduce YQ after implementation of A380 and 787 planes.

The simple answer is no.

Understanding this requires a bit of a longer answer.

What are fuel surcharges?

First of all, understand what “fuel surcharges” are. They’re generally a fixed amount of money added to a fare. The amount will usually be the same across all fares for a given city pair. In other words, all “New York – London” fares that an airline publishes will add the same amount for fuel surcharge.

There are some exceptions to this. An airline may file a different fuel surcharge amount for premium cabins (so a business class ticket might have a higher fuel surcharge than a coach one). And it is possible to file discounted fares that do not incur fuel surcharges or that have lower ones.

But in general, each route can have a fuel surcharge and it’ll be a constant amount added onto all fares for that route.

Here’s a fare breakdown for a random set of dates in September flying British Airways roundtrip economy between San Francisco and London Heathrow.

The fare is $598 ($284.50 outbound plus $313.50 return). The fuel surcharge is $458. The rest of the taxes and fees total $220.10.

Why do airlines impose fuel surcharges?

Once we establish that, it’s easy to understand why fuel surcharges are useful to airlines. Fuel surcharges have nothing to do with the price of fuel.

It makes no logical sense for ‘fuel’ to be broken out separately from the rest of the cost of transportation. It’s one of the cost factors in providing transportation. You cannot buy transportation with the option of taking the fuel or not. Fuel surcharges are, fundamentally, part of the cost of transportation.

Fuel surcharges are an easy, efficient way for airlines to alter their airfares across a given market. They can change one number — the fuel surcharge — and raise or lower (almost) all prices in the market at once.

That’s a whole lot easier than changing the price of every single fare in the market.

For paid tickets, fuel surcharges don’t really matter. They’re displayed as part of the ticket price. They don’t really increase the amount most consumers pay. (They may raise the price paid on some contract fares, where a base fare is negotiated but the surcharges may be on top, that doesn’t touch most consumers but it’s another reason airlines like fuel surcharges.)

How do fuel surcharges influence the cost of award tickets?

This becomes a much bigger deal for award tickets than for paid tickets. It’s almost an historical accident. Airlines use the tool to quickly and efficiently alter all fares in a given market. And as a byproduct they’ve figured out a way to extract cash from their frequent flyers for ostensibly “free” tickets.

Most European and Asian airlines say, effectively, that miles cover the cost of the airfare but not the taxes and fees that are part of the ticket.

So when you redeem your miles, the fare is covered by the fuel surcharges are not. All of a sudden instead of collecting perhaps $50 – $200 in airport taxes in government fees, an airline might collect nearly $1000 total in taxes, government fees, and fuel surcharges.

In our San Francisco – London example above, the fare is $598 and the taxes and fees are $678.10. An airline adding fuel surcharges onto the cost of an award would require the person redeeming miles to come out of pocket $678.10 (not including any telephone booking fee). That’s 53% of the cost of just buying the coach ticket even though one is using miles..

One implication of programs that add furl surcharges to award tickets is that coach awards almost never make sense — a fuel surcharge often represents a substantial portion of the total ticket cost, sometimes even the majority. So you’re spending miles and still coming out of pocket half or more of the cost of a paid ticket, not earning miles and status, and are constrained by award availability.

I’ve even seen cases where discounted fares exist in a market that have lower fuel surcharges — and it is less expensive to buy that ticket than it is to redeem miles (using miles could mean spending more cash rather than less).

Are fuel surcharges the wave of the future?

While at one point it seemed as though fuel surcharges were sweeping the globe, there seem to have become some limits and even reversals.

In 2010 SAS stopped adding fuel surcharges onto awards booked on their own flights. Some airlines have allowed customers to redeem additional miles to cover the fuel surcharges (although rarely at a favorable rate).

Recently Air France and Virgin Atlantic have made moves to cap the fuel surcharges added onto economy award tickets, and quietly Air France fuel surcharges on business class awards seem to have fallen as well.

In the U.S., United and US Airways do not add fuel surcharges onto any award tickets. American adds them onto British Airways awards in full (a change that happened when American members also got access to awards on flights between the US and London, previosuly there were no surcharges added to BA awards but members could book only between Canada, Mexico, the Caribbean and London for transatlantic crossings and of course from London to anywhere else in the world). American adds modest surcharges to Iberia awards.

Delta has added fuel surcharges on some partners, at times on Korean and currently on China Southern for instance, and imposes an international origination surcharge on trips that start in Europe. The roster of airlines they do and do not add surcharges to changes from time to time — Virgin Australia used to have fuel surcharges but now does not, for instance. Virgin Atlantic adds fuel surcharges to awards bookked by their own members, but Delta members can book Virgin awards (albeit with less access to availability) without those junk fees.

In general fuel surcharges are not common in Latin America. They are illegal for flights departing Brazil. Award tickets to and from South America do not incur fuel surcharges as a general matter, regardless of airline or frequent flyer program.

While fuel surcharges are a tempting way to opportunistically extract revenue from consumers who have no where to go (their miles can only be spent through one program), cover much of the cost of redemption or even making on a profit on redemptions, there are clearly limits to the viability and growth of programs which impose them. that’s why we’ve seen some contraction even by European programs.

When American and US Airways merge, and the airlines are both a part of oneworld and operating on the US platform, it is likely that the only remaining US airline not imposing surcharges will be United. That could be seen as a competitive advantage for them… or a revenue that’s too hard to pass up, especially if they don’t believe consumers will give them due credit for holding out.

How can you avoid fuel surcharges on award tickets?

If you have United or US Airways miles, this is not currently an area of concern for you. If you’re redeeming American miles, you don’t need to worry about this as long as you stay away from flights on British Airways. And Delta members originating their travels in the US only face these fees on a small number of their partners.

So this is mostly a problem for people with miles in Asian or European programs, or for people with points in programs that transfer to Asian or European programs.

If you have American Express Membership Rewards, for instance, and want to redeem for travel on a oneworld airline like American or Qantas, your transfer options are Cathay Pacific’s AsiaMiles and British Airways both of which impose fuel surcharges on awards. If you want to use Amex points on Star Alliance airlines like Thai or Lufthansa, your transfer options are Air Canada’s Aeroplan, Singapore Airlines Krisflyer, and ANA’s Mileage Club. Singapore and ANA impose fuel surcharges across the board, while Aeroplan does so on many of its partner airlines.

Here are some strategies to keep in mind:

Participate in programs that do not add them to award tickets. Even if United started adding fuel surcharges onto awards, Avianca’s LifeMiles program does not. LifeMiles has a reasonable award chart and offers one-way awards. They don’t, however, allow stopovers or mixed class of service awards. Their website is fairly functional, but call centers can be frustrating.

Redeem on routes that don’t incur fuel surcharges. US domestic flights don’t have fuel surcharges, so even redeeming British Airways points is cheap. South America doesn’t incur fuel surcharges, either, making that an ideal destination if you’re looking to save on redemption costs while using a European or Asian carrier’s miles.

Redeem on airlines that don’t impose fuel surcharges. Since a fuel surcharge is generally going to be charged on an award ticket whatever would have been priced on a paid ticket (one exception is ANA’s program, which sometimes bills such fees even when apid tickets don’t!), flying an airline like US Airways (Star Alliance) or Air Berlin (oneworld) that don’t add fuel surcharges to fares can be a way around the problem. You can also transfer Briitsh Airways Avios into an Iberia Avios account (if the account has been open at least 90 days and has had some other activity) and Iberia Avios doesn’t add fuel surcharges onto Iberia award tickets. Aer Lingus awards with British Airways points are relatively inexpensive as well (low fuel surcharges).

Redeem for low fuel surcharge destinations. Since fuel surcharges are set route-by-route, some cities are less expensive to book awards to even when fuel surcharges are involved. Flying to Hong Kong, for instance, tends to involve lower fuel surcharges than other nearby destinations likely for competitive reasons.

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More From View from the Wing

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel a topic he has covered since 2002.
Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

Since I’ve often been critical of Gary’s statements about SkyMiles and fuel surcharges, I think it’s only appropriate to give him kudos for providing a quite accurate description of the situation this time around.

Gary – as you know as part of my “Trip of A Million Lifetimes” booked on 3 seperate tickets, the ANA portion originates in Brazil to avoid these fuel surcharges as you note. With them taxes and fees should have been $1200+ per ticket, and wound up only at $200 per ticket (although I did have to call them out after ticketing, and convince them to change ~$200 in fuel surcharges still loaded onto the ticket that they forgot to remove). The routing is:

I believe there was a class action suit filed in 2012 against BA for failing to disclose what portion of their fees were attributable to fuel surcharges, but I’d be curious to know whether there has ever been a suit filed against all airlines that charge “fuel surcharges” that have nothing to do with increased fuel costs. Isn’t the entire notion of fuel surcharges deceptive, even if the exact amount of the surcharge is in fact disclosed? Don’t any plaintiffs’ attorneys out there want to make a boatload of money and help out of the frequent flyer community in the process?

@David, the nomenclature “fuel surcharge” is likely deceptive. Therein might lie some basis for a claim based on some state or federal consumer protection statute – my research is scant. Basically, the term carries the notion that it is part of some oil price risk sharing scheme between the airline and the customer, when, in substance it in no way does so.

The indistry could respond by paying whatever civil fines apply and then changing the nomenclature altogether to some term which is not deceptive. But that, at lease, would not rankle the consumer so much.

While fuel surcharge amounts being a function of point of sale is certainly not the most common of cases, I would be surprised if it is limited merely to cases with just one specific airline and Brazil. I would find such limit (i.e. one airline and Brazil) to be surprising, given the possibility of differences arising due to at least one or more of the following: currency conversion variation; and/or regulatory regime variation; airlines having country-specific promotions/marketing/pricing practices (including that of international travel city pairs not being priced bi-directionally as commonly as domestic travel city pairs).

I think the main reason that these fuel surcharges have become standard in the industry is that they don’t incur government taxes as the actual airfare does. Just like baggage fees, it is simply a way of unbundling the product to keep a large portion of the airline’s revenue tax free ( or at least, taxed low).

@Joe please see above – the 7.5% excise tax applies to domestic tickets, not international, and domestic tickets don’t have fuel surcharges… Remember also that fuel surcharges are not exclusively or even predominantly a US phenomenon.

@gary, you would probably know better than most, but my understanding on the ACCOUNTING of fuel surcharges for the airlines is that they are 100% direct COGS, and therefore go a long way to reducing the actual targetable revenue for taxation at the corporation level..

The hijinks that some airlines play, 67$ fares and 650$ in fuel surcharges are simply ridiculous, but they do it and get away with it. I’d really like to have something like that where I charge my clients 15$ an hour for my services and then 225$ an hour for the oxygen and space I require to get my job done, but am able to write off 225$ directly to COGS..wouldn’t THAT be nice.

At some point I believe this all has to change, since it’s really become quite a racket from many angles.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.

Co-founder of frequent flyer community Milepoint.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

View from the Wing is a project of Miles and Points Consulting, LLC. This site is for entertainment purpose only. The owner of this site is not an investment advisor, financial planner, nor legal or tax professional and articles here are of an opinion and general nature and should not be relied upon for individual circumstances.

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